Outlook
Bank of America projects additional depreciation of the euro against the Australian dollar and the New Zealand dollar in the months ahead. The bank maintains a constructive stance on both NZD/USD and AUD/USD for the near term, even as it notes varying degrees of vulnerability in market positioning for those pairs.
Positioning and vulnerability
While BofA remains bullish on the two Antipodean dollar pairs versus the U.S. dollar, it warns that positioning looks notably exposed in the New Zealand dollar pair and, to a lesser extent, in the Australian dollar pair. The observation highlights a potential sensitivity in NZD/USD that could amplify moves should market dynamics shift.
China headwinds for commodity-linked currencies
The bank points to weak domestic demand in China as a headwind for both Australia and New Zealand. Specifically, a lower credit impulse in China is expected to restrain imports from those economies, a factor that weighs on currencies closely tied to commodity exports.
Commodities view
Despite concern about demand in China, Bank of America’s commodities strategists remain constructive on industrial metals and agriculture. The strategists identify a confluence of forces - rising AI-related capital expenditure, the energy transition, and weather risk - that are likely to amplify supply and demand imbalances across these commodity markets.
Implications
The bank’s view ties currency outlook, trade flows, and commodity market fundamentals together: weaker Chinese demand reduces import volumes, which can pressure Australia and New Zealand currencies, while underlying structural and cyclical factors in commodities could sustain price strength despite those headwinds.